Call for oil import fee grows louder

By
John Yemma, Staff writer of The Christian Science Monitor /
November 18, 1986

Boston

Slowly but surely, the voices calling for an oil import fee are growing louder. The latest such call comes in a Harvard University study, released Monday, that urges the United States to impose an immediate $10- to $11-a-barrel tariff on imported oil to preserve its energy security. Such a tariff would cause gasoline prices at the pump to rise an estimated 24 cents a gallon.

In a major examination of how cheap imported oil has affected the US over the past year, William Hogan and Harry Broadman of the Harvard Energy and Environmental Policy Center contend that a tariff is the only way to keep the nation from becoming too dependent on Middle Eastern crude.

``This is the time we should be filling the SPR [Strategic Petroleum Reserve], imposing an oil tariff, and preparing for years of famine to come,'' says Dr. Hogan. ``Eventually, something will happen. There will be a military, political, or economic event that affects oil supply. We are trying in part to postpone that day and make the impact when it comes less severe.''

Even though a tariff would increase the price of gasoline and accelerate inflation, Hogan and Dr. Broadman argue that after a transition period, the actual cost of imported oil would decline as US consumption fell and conservation increased.

A tariff would also help preserve a vitally important energy industry at home, they say.

But it's a controversial conclusion.

An import tariff would be a form of trade protection and a tax; thus would fly in the face of the Reagan administration's free-trade, antitax posture. It would also hurt oil-producing US allies such as Mexico, Canada, and Venezuela - not to mention friendly nations such as Saudi Arabia, pro-Western Persian Gulf states, Nigeria, Indonesia, and so on.

And, finally, economists point out that a tariff would simply prompt oil exporters to boost their prices so that they, not the US, would reap the windfall of tariff revenues.

Hogan concedes that ``political constraints will probably dominate this issue, but we feel the economic arguments are quite robust.''

Pro-tariff advocates say that US energy security and the financial condition of oil industry are in jeopardy from the flood of cheap overseas oil.

The American Petroleum Institute says bankruptcies in Texas, Louisiana, and Oklahoma have risen 53.1 percent in the past year. Tens of thousands of jobs have been lost, and banks in these states are in dire straits.

Oil drilling has fallen sharply. Estimated completions of US oil and gas wells in the third quarter of 1986 are 48.4 percent below the third quarter of '85 and 57.6 percent below the same period of '84 (see chart).

With oil prices half what they were a year ago, imports are averaging more than 5 million barrels a day - the highest level since 1981 - because of higher consumption and lower US oil production. A $10 or $11 a barrel tariff, the authors say, would reverse these trends.

``Our proposed fee should be thought of as an insurance policy against the risks of future disruptions from the Middle East,'' the authors say. Without a tariff, Broadman says, ``the cycles in the oil markets will be greater.''

The Harvard report comes at a time when the federal government is conducting a study into the security implications of a US oil import fee. William F. Martin, deputy secretary of energy, has noted that the study is aimed at blocking the reemergence of an oil supply monopoly by Persian Gulf producers.

The interagency study is slated for presentation to President Reagan in January. It will, Mr. Martin told Platt's Oilgram News recently, emphasize that dependence on Gulf petroleum in the 1990s is a ``world energy security problem.'' The study looks at options ranging from lifting environmental regulations that hamper energy exploration and production to further deregulation.

In the event of a supply disruption, the 500 million barrels in the US Strategic Petroleum Reserve, plus the 10 million barrels of excess crude production in the world, would likely be called on. But Hogan and Broadman say that is only a stopgap.

Oil prices are now around $15 a barrel, notwithstanding the excitement sparked by the recent ouster of Ahmad Zaki Yamani as Saudi oil minister. OPEC's pricing committee met in Ecuador late last week to try to grapple with the dilemma posed by the Saudis.

King Fahd and his new oil minister, Hisham Nazer, have said they want the price of oil to rise to $18 a barrel, but at the same time they are demanding a bigger Saudi share of the market.

The two goals seem to be mutually exclusive. OPEC ministers convene in Geneva Dec. 11 to take up the quota question.